Full Judgment
Sanjay Arora, A. M.:
1. These are cross Appeals, i.e., by the Assessee and the Revenue, arising out of the Order by the Commissioner of Income Tax (Appeals)-12, Mumbai ('CIT(A)' for short) dated 30.11.2010, partly allowing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2007-08 vide order dated 03.12.2009.
2. We may take up the assessee's appeal first, i.e., in the order the two appeals were heard by us. The principal issue arising in the assessee's appeal, projected per its first three grounds, is the head of income under which the hire charges on the operation of a commercial complex, being at Rs.452.32 lacs for the current year, is to be assessed, i.e., either as 'income from house property' or as 'business income'. Explaining the assessee's case, the ld. Authorized Representative (AR), the assessee's counsel, would submit that the issue is covered in the assessee's favour by the decision by the Tribunal in its own case for earlier years, i.e., A.Y. 2001-02 (in ITA No.3404/Mum/2006 dated 06.04.2009) and A.Y. 2004-05 (in ITA No.2247/Mum/2008 dated 08.08.2012), taking us through the relevant part of the tribunal's order for A.Y. 2001-02, being the lead order. On being questioned as to how the assessee claims an identity of facts with the preceding years, for the said decisions to be applicable, he would take us to para 4 of the assessment order as well as paras 4 and 4.1 of the impugned order, which clarify and state of there being no material change in the situation for the current year. Further, on being pointed out that the gross receipt as per the assessment order (Rs.11.89 crores) is at variance with the amount in dispute as projected by the assessee's ground no.1, it was submitted by the counsel that the ld. CIT(A) had allowed part relief to the assessee inasmuch as it is only the rent component that stood confirmed by him as income from house property, with the balance amount received having been confirmed by him as against the services and amenities provided, so that the same was assessable as business income u/s.28 of the Act. The ld. Departmental Representative (DR), on being confronted with the same, could not point out either any mistake or error in the orders by the tribunal being relied upon by the assessee or any change in the facts and circumstances of the case.
3. We have heard the parties, and perused the material on record. As clarified by the apex court per its constitution bench decision in the case of Sultan Brothers (P.) Ltd. vs. CIT [1964] 51 ITR 353 (SC), the law does not draw any distinction on the basis of the nature of the letting, i.e., commercial or otherwise. A thing is not by its very nature a commercial asset. An asset, when it used for business, may be described as so, and business could be carried out with practically all things. As such, there is no basis in law for holding an income to be from business under the Act on the basis of commercial exploitation of a house property on it being let. So however, at the same time, the law itself, per section 56(2)(iii), provides for a composite letting, i.e., involving machinery, plant, furniture and fixture, etc. besides building, as being either 'business income' or 'income from other sources', where their letting is integral and inseparable from the letting of the building. This is, as explained by the apex court in Sultan Bros. (P.) Ltd. (supra), for the reason that it then becomes a new kind of income, not covered u/s. 9 (of the 1922 Act, corresponding to s. 22 of the 1961 Act). That is, income, not from the ownership of the building alone, but an income which though arising from building, would not have arisen if the plant, machinery, or furniture had not been let along with it. It further goes on to explain the concept of 'inseparable letting' as not one where the two, i.e., the building and plant, machinery or furniture, are inseparably connected when let out, but that the letting of one is inseparable from that of the other. That is, the inseparability referred to in sec. 56(2)(iii) is one arising from the intention of the parties to the arrangement.
In the instant case, the tribunal has given a definite and clear finding of the assessee providing, apart from built-up space, a range of services and facilities, which are intrinsically linked to the letting of the building, specifying the machinery deployed, so that it is a case of composite letting. Further, though the services stand provided per different agreements, they cannot be considered as de hors and separate from each other inasmuch as they form part of a single arrangement. It is on the basis of these findings that the tribunal has rendered its decision, for which reference is made to paras 14 and 15 of its order for A.Y. 2001-02 (supra), which in fact stand reproduced in its subsequent order for A.Y. 2004-05 (supra). No infirmity in the said findings has been brought to our notice. That the same continues to obtain for the current year as well stands abundantly clarified by the orders of the authorities below, to which reference was drawn during hearing. Under the circumstances, we find no reason for any change in the consistent view adopted by the tribunal, which on facts appear to be consistent with the law as explained in the case of Sultan Brothers (P.) Ltd. (supra) inasmuch as we have, in view of the undisputed parity of facts, not examined the same in detail. We, accordingly, direct for the assessment of the gross receipt as business income. We decide accordingly.
4. Ground nos. 2 and 3, which were not specifically argued before us, we find as not arising out of the impugned order. The same agitate the non-allowance of operating expenses (Rs.4,89,82,387/-) and depreciation on building (Rs.1,18,48,523/-) claimed by the assessee as business expenditure/deduction in computing the business income. There is no discussion qua the same in the assessment order; the assessing authority ignoring the same in view of the income being assessed as income from house property. The same thus arise as a direct fall out of the adjudication of the assessee's ground no.1, and are thus maintainable before us. On merits, the matter would require being restored back to the file of the A.O. for verification of the assessee's claims, and adjudication in accordance with the law. We decide accordingly.
5. The only other issue per the assessee's appeal (ground no. 4), which is also the subject matter of the Revenue's appeal, is the direction by the ld. CIT(A) to the Assessing Officer (A.O.) to re-compute the disallowance u/s.14A on a reasonable basis, relying on the judgment by the hon'ble jurisdictional high court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 (Bom). The A.O. computed the disallowance under the said section, which is admittedly applicable in the instant case; the assessee having claimed the dividend income of Rs.575 lacs as tax exempt u/s.10(34) of the Act, under Rule 8D of the Income Tax Rules, 1962 ('the Rules' hereinafter). The ld. CIT(A) opined that the facts, in view of the said provision, warrant a statutory disallowance, which had to be made toward both direct and indirect expenditure, observing the assessee to have incurred administrative expenditure at Rs.847 lacs and financial charges at Rs.886 lacs. The matter was, accordingly, remanded to the file of the A.O. to compute the said disallowance on a reasonable basis. We find his adjudication to be in accordance with the law, as explained by the hon'ble high court in Godrej and Boyce Mfg. Co. Ltd. (supra), so that, even as explained during hearing itself, there is no cause for any grievance to either side. The A.O. has to be satisfied with the assessee's claim u/s.14A, if any, and compute the disallowance in a reasonable manner both qua direct as well as indirect expenditure, giving his definite findings. We decide accordingly.
6. In the result, the assessee's appeal is partly allowed and partly allowed for statistical purposes, and the Revenue's appeal is dismissed.